US embassy cable - 05OTTAWA2620

UNCLAS SECTION 01 OF 02 OTTAWA 002620 
 
SIPDIS 
 
PASS USTR FOR CLUNE, BALASSA, BURCKY AND SCHNARE 
 
STATE FOR EB/CIP, EB/DCT AND WHA/CAN 
 
DOC FOR ITA/MAC -- OFFICE OF NAFTA 
 
FCC FOR INTERNATIONAL BUREAU 
 
PARIS FOR USMISSION UNESCO 
 
E.O. 12958: N/A 
TAGS: ECPS, ETRD, CA 
SUBJECT:  SUBSCRIPTION RADIO:  HERITAGE MINISTER BACKS DEMAND 
TO RE-THINK LICENSE DECISION 
 
REF: OTTAWA 1865 
 
1.   (U) SUMMARY/INTRODUCTION:  Canadian Heritage Minister 
Liza Frulla reportedly will ask her Cabinet colleagues to 
review the recent regulatory decision to license the 
extension into Canada of two U.S-based satellite radio 
services.  The regulatory decision was two years in the 
making, and a re-think at Cabinet level would be costly (and 
frustrating) to the two U.S. radio firms, their Canadian 
partners, and auto manufacturers (and other equipment 
vendors), and could further encourage gray- and black-market 
broadcast signal reception among Canadians.  END 
SUMMARY/INTRODUCTION 
 
2. (U) In June, Canada's broadcast regulator approved three 
license applications for subscription radio services.  One 
is ground-based and all-Canadian, while two are Canadian 
extensions of U.S.-based "XM" and "Sirius" satellite radio. 
XM and Sirius, which already offer services in the United 
States, joined with Canadian partners (an inevitable 
requirement given Canada's broadcast regime) to propose 
"Canadian" extensions of their services.  Major auto 
manufacturers backed the applications by XM and Sirius, 
since the carmakers wanted to place receivers immediately in 
new 2006 vehicles.  The all-Canadian consortium involves two 
integrated media firms, Toronto-based CHUM Ltd. and Montreal- 
based Astral Media Inc.  Their proposed subscription radio 
service would operate from ground stations because no 
Canadian-controlled satellite slot is currently available. 
 
 
3. (U) The CRTC agreed to license all three proposed 
services, with conditions not unlike the "Canadian content" 
rules it imposes on other broadcasters.  The two satellite 
services must meet these conditions: 
 
-- At least eight original channels must be produced in 
Canada.  A maximum of nine foreign channels may be offered 
for each of these Canadian channels. 
 
-- At least 85 percent of the musical selections and spoken 
word programming on the Canadian channels must be Canadian. 
 
-- At least 25 percent of the Canadian channels must be in 
the French language. 
 
-- At least 5 percent of gross annual revenues in Canada 
must be contributed to initiatives for the development of 
Canadian talent (again, this is similar to requirements for 
conventional Canadian broadcasters). 
 
-- One of the services committed to include 36 hours per 
week of Canadian-produced programs, featuring Canadian 
artists, on the non-Canadian music channels offered to 
Canadian subscribers. 
 
 
4. (U) Opposition to the decision is mainly driven by the 
partners in the Canadian service, CHUM and Astral, who argue 
that their business model would not be economic given the 
terms of license.  The push to review the decision is also 
supported by the Canadian music/recording industries and by 
"Friends of Canadian Broadcasting," a nationalist cultural 
lobby group.  These groups have focused their criticism on 
the fact that the effective Canadian content level required 
by the licensing decision would be around ten percent, 
versus over thirty percent in conventional radio, and that 
this would permanently undermine the Canadian-content 
regime.  French-language interests, including the provincial 
Government of Quebec, also complain about the effective 
French content - which could be as low as one channel in 
forty. 
 
5. (U) While nominally a regulatory body, the CRTC plays a 
major role in determining Canada's broadcasting and 
telecommunications policies.  Its processes are lengthy and 
complex, and partly for this reason, the government rarely 
agrees to revisit its decisions. 
 
6. (SBU) Canadians can receive satellite broadcasts intended 
for U.S. audiences, both TV and radio, by purchasing the 
necessary hardware in the United States (when traveling 
there, or by mail order, or online), or even through illicit 
Canadian-based dealers.  In the case of satellite 
television, this black/gray market reception is considered a 
serious threat to the licensed Canadian broadcasting and 
cable industries, which have been pressing the GOC to 
strengthen enforcement and penalties.  Continued delay in 
licensing subscription radio services in Canada will 
arguably foster the growth of a similar black/gray market in 
radio equipment and software. 
 
7. (SBU) COMMENT:  Our contacts suggest that Frulla, a 
relatively inexperienced Minister (she joined Cabinet in 
June 2004) from a Quebec constituency, is too close to 
cultural-nationalist interests to handle the job 
effectively.  On this and other issues, such as updating 
Canada's copyright law, they say that Canadian Heritage 
ministers must be strong enough to disappoint that core 
constituency in order to strike compromises with other 
departments, primarily Industry Canada. 
 
WILKINS